Bridging wage and wealth gaps isn’t the right Fed mandate

Jerome Powell

The Federal Reserve, with its enormous capacity for research, tells us the coronavirus recession has hit women and minority populations hard due to disruptions in the retail and service sectors. Federal Reserve Chair Jerome Powell said in June that the persons least able to weather an economic downturn are now carrying the greatest burden. Speaking on “Face the Nation” August 9, Charles Evans, president and CEO of the Federal Reserve Bank of Chicago, said Black unemployment is higher than 14 percent, Hispanic unemployment is higher than 12 percent, and White unemployment is 9 percent. 

When I spoke to Esther George, president and CEO of the Federal Reserve Bank of Kansas City, I asked her to comment on how the Fed can support an economy that works for all Americans. She and her colleagues have recommitted themselves to thinking about this across all of their areas of responsibility, George said.

When making monetary policy decisions, for instance, the Fed can see how women, African Americans, Hispanics and other groups fare in the economy. Yet the tool to affect change — moving interest rates — is a “blunt one,” she said. The Fed can understand economic weaknesses but can’t, for example, say, ‘we’d like to target Black unemployment.’”

Congressional Democrats appear to disagree. In August, they introduced a bill to change the Fed’s mandate. In addition to being asked to keep prices stable and achieve maximum employment, they believe the Fed should also work to “minimize and eliminate racial disparities in employment, wages, wealth and access to affordable credit.”

I liken it to how we’ve asked schoolteachers to also be social workers, nurses and police. 

As a bank regulator, the Fed already has within its purview the mandate to enforce fair lending rules. And, let’s remember that the modernization of the Community Reinvestment Act is now underway; both bankers and community groups have had ample opportunity to contribute their voices to this overhaul. The process needs to continue unimpeded.

Also, the Fed has a robust agenda around community development. George calls it playing the role of “honest broker” whereby the Fed brings entities in need of financing together with those who can provide credit. In other words, the Fed is doing a lot, including acting increasingly “dovish” when setting rates well before the emergence of the pandemic.

But minimizing and eliminating racial disparities in employment? Isn’t that the federal government’s job? We have the Equal Employment Opportunity Commission, charged with enforcing federal laws regarding discrimination. Might Congress ensure this agency has the funding it needs to do the work it’s charged with? Could we look at the Fair Labor Standards Act, which exempts agricultural and domestic workers — jobs predominantly held by people of color — from protections enjoyed by other workers? 

The Fed is doing its job identifying and responding to disparities within its influence, and doing so with competence. I wish I could say the same about Congress.